20160710-Maybank_KERPL-India_1Q_earnings_preview_Banks_metal_sectors_spoil_recovery_14页_798kb

India 1Q Earnings Preview Summary

Core Content

The document provides an analysis of the performance of various sectors in India for the first quarter of fiscal year 2017 (1QFY17), focusing on corporate earnings, sector-specific performance, and stock recommendations. It highlights the overall economic recovery, the impact of certain sectors on the earnings, and the outlook for the second half of the year.

Main Points

Overall Earnings Outlook

• Revenue Growth: The corporate revenue for 1QFY17 is expected to increase by +9% YoY, across the 70 companies covered.
• Net Profit: Aggregate net profit is flat YoY, primarily due to asset quality issues in banks and losses in metal companies.
• Excluding Banks and Metals: Earnings are estimated to rise by 9% YoY, which is considered a good start to the year.
• Earnings Growth Catalysts: Normal monsoon and the 7th Pay Commission disbursements are expected to support growth in the second half of FY17.

Sector Performance

Strong Earnings Expansion

• Large-cap Companies: Expected to show strong earnings growth include TTMT, INFO, PWGR, ITC, BRIT, ACC, ACEM, UTCEM, HDFCB, and IIB.
• SMID Companies: Strong earnings expansion is expected from SOTL, INXW, LVB, EDEL, CAFL, DBL, EXID, SREI, and BJE.

Stock Picks

Risk Factors

• Brexit and US Fed Actions: Could negatively impact EM flows.
• Asset Quality: A major drag on banks' earnings.
• Monsoon and 7th Pay Commission: Key catalysts for the second half of the year.

Key Information

• The NIFTY target for 2016 is 8,000, based on a 16x FY17F PER.
• MKE Top Picks are highlighted with BUY recommendations and upside percentages ranging from 13% to 51%.
• The overall economic recovery is expected to be supported by monsoon conditions and policy changes such as the GST bill.
• Telecom sector is under pressure due to rising interest costs and depreciation.
• Mining and metals continue to suffer due to falling prices and low utilization.
• Property sector is expected to report weak earnings due to poor sales and delayed revenue recognition.
• IT sector shows mixed results, with INFO outperforming and WPRO, KPIIT, and TECHM showing weaker performance.
• Auto sector has Tata Motors leading the way with 13.5% YoY growth, while others show mixed results.

Conclusion

The 1QFY17 earnings are a mix of growth and decline across sectors. While the economy shows signs of recovery, certain sectors such as banking and metals continue to face challenges. The document emphasizes individual stock performance over the broader market, suggesting that some stocks are undervalued and offer attractive upside potential. The outlook for the second half of the year is positive, contingent on policy support and economic recovery.